Safaricom gets reprieve in review of competition laws

The team of consultants that the government hired to review telecoms sector competition rules has knocked off or removed the sting from a number of clauses, lifting the regulatory cloud they cast over the market leader Safaricom.

Frontier Economics, a UK consultancy that Information minister Samuel Poghisio hired in June in wake of Safaricom’s vigorous opposition to the new regulations, found key aspects of the gazetted rules to be out of tune with international best practices and has recommended that they be revised or struck out altogether.

Safaricom had identified a number clauses it said were unfairly targeted at its business and threatened to seek legal redress if the government failed to repeal them.

The rules aimed to level the competitive landscape for telecoms operators and to prevent the service providers from using cross-network tariffs to lock in and exploit consumers.

Safaricom will particularly find relief in the fact that the consultants have recommended a more rigorous definition of market dominance and want regulatory action reserved for abuse of market dominance, a key issue that the telecoms firm raised when the rules were published in May.

“The critical issue to consider is whether Safaricom or indeed any other entity that is perceived to be dominant in a particular market can overtly act independently of both its competitors and consumers by increasing retail consumer prices and erecting barriers to entry for new players,” said Mr Michael Joseph, the Safaricom chief executive.

The consultants have recommended that the rules be refined to read exactly as Mr Joseph had wanted.

The European Commission’s telecom sector competition rules that the consultants heavily borrowed from have set control of between 40 and 50 per cent of total revenues as the threshold above which a player is declared dominant.

This means that a service provider such as Safaricom will not be declared dominant just because it has significant market power, but also on account of other factors, such as possible barriers to market entry for potential competitors, and barriers to existing competitors expanding in the market.

Burden of proof

Safaricom controls 78 per cent of the market followed by Zain Kenya with 10.4 per cent while Essar and Telkom Kenya have 6.4 per cent and 5.2 per cent respectively.

Though these numbers would still leave Safaricom as a dominant player, the telecoms giant will find solace in the fact that the consultants have put a heavy burden of proof on the regulator in the event that it intends to act against a dominant player.

It will, for instance, be required to notify the affected service providers, and demonstrate that there has been an abuse of the dominant position in a specific market segment or a strong likelihood that the abuse will occur.

In the event that the action it intends to take is meant to forestall a looming abuse of market dominance, the CCK will have to meet more than five stringent regulatory requirements.